Small decrease in foreign reserves + influx of safe-haven funds, Swiss National Bank may increase intervention to suppress the appreciation of the Swiss Franc.

The Swiss National Bank made a small sale of foreign exchange assets at the end of last year, which slightly reduced its balance sheet. This move also increased the possibility of the Swiss franc strengthening further. The Swiss National Bank announced on Tuesday that its foreign exchange holdings decreased by 6 million Swiss francs (about 7.5 million US dollars) in the fourth quarter of last year. Looking at the data for the whole year, the size of the bank's balance sheet remained relatively stable. Due to the impact of the Middle East situation, funds have flowed into safe-haven assets, causing the Swiss franc to surge to a ten-year high this month. In response, the Swiss National Bank has sent a clear signal that it will increase interventions to prevent the Swiss franc from appreciating excessively. The central bank's move is aimed at easing the pressure of the currency's appreciation. A stronger Swiss franc would lower import costs, thereby dragging down the level of inflation. In November of last year, the growth rate of consumer prices in Switzerland dropped to zero, touching the lower limit of the Swiss National Bank's inflation target range. The inflation data for the fourth quarter ended up lower than official expectations. From October to December last year, the Swiss franc slightly appreciated against the euro, leading to speculation in the market that the Swiss National Bank might intervene in the foreign exchange market by selling the Swiss franc. However, before the monetary policy meeting on December 11th, the central bank's staff reported to the decision-makers that the Swiss franc's trade-weighted exchange rate had experienced an overall "small depreciation" since September. Previously, the Swiss National Bank had been continuously selling foreign exchange reserves in 2022 and 2023 to push up the Swiss franc and lower import prices in order to curb domestic inflation pressures.